Faith in goverment unfounded

April 29, 2010

By Tibor Machan: Freedom columnist

Enthusiast for increasing government regulations of people in business, including those in the financial markets, never bother to answer the one basic question that any rational person would need to have answered before joining them as champions of their proposed remedies of our economic wows. This question is, “Why would those in governments regulating those in markets manage to be incorruptible?” For incorruptibility is a presumption of the policy that these enthusiasts are committed to. Otherwise what’s the point? Where is the remedy?

You see, if those in government are not corruptible, their regulation of business cannot be of any help. They would just as easily game the system as those whom they intend to regulate, indeed, more easily because of their legal power. Are there ways to stop them doing this? Would they be regulated by some other regulators who would make sure they aren’t corrupt? And then how would those regulators manage to be invulnerable to corruption? More regulators, ad infinitum?

It fully validated that people in government easily fall prey to the temptation of corruption. Since before the time of Aristotle it has been noted over and over again that people with power over other people tend toward corruption. Aristotle argued that despite the fact that the idea of an ideal leader of society sounds appealing, it is a trap because once in power, such “ideal” leaders tend to become despotic. Which is exactly true about government regulators, sometimes quite unintentionally (when the system goes bad).

Those in government have a great many ways to dodge any charge of corruption. A prominent legal device is sovereign immunity — since government officials, including regulators, are agents of the citizenry, they cannot be sued by us. It would be like suing ourselves! So the only way to cope with malpractice by such folks is to implore their bosses to fire them or to vote against those who hired them. Only if they are thieves or embezzlers can they be touched. Favoring their pals as they make decisions, for example, isn’t something for which they can be convicted. And one of the big charges against government regulators is precisely that they favor those like them in the market place — former colleagues, past employers, etc.

The economic school of thought called “public choice theory” has developed this idea so well that some of its pioneers have received the Nobel Prize (Professor James Buchanan, for example). Others have shown that regulators don’t manage to anticipate problems early enough and by the time they go after some company about possible malpractice, it’s too late.

Aside from these pitfalls government regulators face there is also the plain fact of having their own agendas.

So, the bottom line is government regulation is mired in confusion and the probability of ineptitude and malpractice, probably much more so than faced by market agents who are supposed to be regulated. So this faith in government regulation repeatedly voiced by Obama & Co. simply isn’t well founded. Indeed, it is most often misdirected. Sure, now and then regulators can do something right but even a broken clock shows time correctly twice a day.

Anytime I am told not to worry about things because the government will regulate something and we will be saved from the problems of reckless, anarchic free markets, I cringe about the naivet